It’s All About The Benjamins

This article was originally published on on September 12th, 2014 at 10:08am EST

“Buy land. They ain’t making any more of the stuff.”
– Will Rogers

Applying this premise to the current investment landscape—what’s something else they ain’t making any more of? How about US Dollars? Sure, “they” have been “making more of them” for the past five years, but isn’t that changing? And isn’t that changing in dramatic fashion in relation to the world’s other two major currencies, the Euro and Yen?

There may be a couple ways to profit from the strengthening greenback, one of which is to simply buy it. Active investors not concerned about current yield and looking for such exposure might consider buying UUP, the PowerShares DB US Dollar Bullish ETF.

The announcement and initiation of easing in the European Union and further easing in Japan has caused the USD to break out of its multiyear downtrend. As you can see below, we see a strong technical setup for continued dollar strength (as shorter-term moving averages eclipse the longer-term) in a positive fashion:

“When the facts change, I change my mind. What do you do, sir?”
– John Maynard Keynes

What changed? Well, since the beginning of the year both Europe and Japan have been losing their respective fights against deflation. Japan seems to have been deflating long enough to turn itself inside out. Nevertheless, the Central Banks for both regions have launched efforts to devalue their currencies (against the dollar). Why do this? There is no quicker way to make one’s goods more attractive to the largest consuming nation, which also happens to use US Dollars.

Just six months ago we pointed out here that the dollar looked to be weakening still and recommended buying commodities, via DBC, the PowerShares DB Commodity Tracking ETF—priced in USD—as a result. It looks like it may be time to concede defeat and fold our hand on this one, especially in taxable accounts in which the blow will be softened by a tax loss.

“You got to know when to hold ’em,
Know when to fold ’em….”
– Kenny Rogers

Now, what can we do with this information? Who does a stronger dollar help? And who does it hurt?

Let’s start with oil since it’s probably the most widely discussed/used/traded commodity. In the article I linked to above I discussed that commodities the world over are denominated in US Dollars—as such, a strong dollar will tend to force prices down. I heard a commentator on CNBC this morning mention how there was little to no correlation (either direct or inverse) between dollar strength and oil price weakness. You be the judge:

Provided the argument outlined above holds true, here are some prospective groups that will be helped by a stronger dollar and/or lower oil prices:

– The US consumer
– US Treasuries: iShares 20+ Year Treasury (TLT)
– Airlines: Delta Air Lines (DAL), Southwest Airlines (LUV), United Continental Holdings (UAL)
– International and Emerging Market Stocks: Vanguard FTSE Europe (VGK), Vanguard FTSE ex-US Large Cap (VEU), iShares China (FXI), iShares Latin America (ILF), iShares MSCI Emerging Markets (EEM)

And those who might be hurt:

– US Large Cap Stocks (Smaller companies have less exposure outside the US); consider further profit taking here.
– Big, domestic oil producers: ConocoPhillips (COP), Chevron (CVX), ExxonMobil (XOM)
Russia (RSX)

That last bullet could be more of a bomb. It costs Russia something like $80 to get a barrel of their country’s single largest export out of the ground—oil and gas exports make up 40% of Russia’s GDP. As the price drops globally, so does Russia’s chances of turning around their already floundering economy. And considering Putin’s long-standing track record of being a reasonable and all around swell guy, something tells me the trend above won’t last forever…

If you have questions or feel we might be able to help you, please don’t hesitate to call.

Adam B. Scott
Argyle Capital Partners, LLC
10100 Santa Monica Blvd, #300
Los Angeles, CA 90067
(310) 772-2201 – Main

Adam Scott’s profile on can be found here.

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